Can I hold an annuity inside an IRA?

Yes, an annuity can generally be held inside an IRA. Whether that makes sense depends on what the contract contributes to your retirement plan beyond what the IRA already provides.

Does an annuity inside an IRA give me extra tax deferral?

Generally no. A traditional IRA already provides tax deferral on earnings. The reason to consider an annuity inside an IRA should come from contract features such as income guarantees or protection, not from additional deferral.

At what age do RMDs start?

Under current IRS guidance reflecting the SECURE 2.0 Act, the required beginning age is 73 for individuals who reach age 72 after December 31, 2022, and is scheduled to increase to 75 for individuals who reach age 74 after December 31, 2032. Confirm current requirements with the IRS or your tax professional.

Do Roth IRAs have required minimum distributions?

Roth IRAs are not subject to required minimum distributions during the original owner's lifetime. Different rules can apply to beneficiaries.

What happens if I miss an RMD?

The IRS imposes an excise tax on the amount not distributed — 25% under current law, reduced to 10% if the shortfall is corrected within the applicable correction window. Report and address a missed distribution with your tax professional.

Annuities & Taxes

Annuities, IRAs and RMDs: What Retirees Need to Know

An IRA provides tax advantages. An annuity provides insurance-contract features. When the two are combined, understanding which rules come from which layer becomes especially important.

By Evan Sussman, IFW Certified Retirement Income ExpertPublished Sep. 20267 min read

The Quick Answer

An IRA Is a Tax Framework. An Annuity Is a Contract.

An IRA is a tax-advantaged retirement arrangement. An annuity is an insurance contract. An annuity can be held inside an IRA — and when it is, the tax rules generally come from the IRA layer while the guarantees and features come from the contract layer.

That distinction explains most of the confusion in this area. Tax deferral inside an IRA comes from the account's tax status, not from the annuity.

Required minimum distributions are an IRA-layer rule. Surrender provisions, income guarantees and death benefits are contract-layer terms.

IRA = tax rules
Annuity = contract terms
RMDs = IRA-layer requirement

Educational only. Review your situation with a qualified tax professional.

Many retirees own both, sometimes in the same place, and the words get used interchangeably. They shouldn't be. Understanding which rules come from which layer makes it far easier to evaluate whether holding an annuity inside an IRA makes sense for you.

First, Understand the Two Layers

Two Layers. One Retirement Decision.

1
Layer 1 — The IRA: A Tax Framework
A tax-advantaged retirement arrangement. It sets contribution rules, the tax treatment of distributions and required minimum distribution requirements.
2
Layer 2 — The Annuity: An Insurance Contract
Issued by an insurance company. It sets guarantees, crediting or investment structure, income options, surrender provisions and death benefits.
3
The Result — A Retirement Strategy
How the two layers work together to address your actual objectives: income, protection, growth potential, liquidity or legacy.

What Tax Deferral Does an IRA Already Provide?

Traditional IRA earnings are generally not taxed year by year as they accumulate. Tax generally becomes relevant when money comes out. That deferral is a function of the IRA itself — it applies to whatever the IRA holds.

Why Might Someone Hold an Annuity Inside an IRA?

There can be legitimate reasons — but they should come from what the insurance contract contributes, not from tax deferral that the IRA already provides. Depending on the type of annuity and the contract terms, potential reasons may relate to:

Income that a contract is designed to continue for life, which can address longevity risk
Principal protection features available in certain annuity types, subject to contract terms
Reducing exposure to market declines for a portion of retirement money, depending on the contract
Contractual guarantees backed by the issuing insurance company
Death benefit or beneficiary features specific to the contract

It's also fair to weigh what you give up. Annuities inside IRAs can involve surrender periods, limited liquidity and charges for optional benefits. Not every annuity has every one of those features, and not every retiree needs every one of those benefits.

Where Do RMDs Come In?

Required minimum distributions are amounts the IRS generally requires you to withdraw from certain retirement accounts each year once you reach the applicable age. Under current IRS guidance reflecting the SECURE 2.0 Act, the required beginning age is 73 for individuals who reach age 72 after December 31, 2022, and is scheduled to become 75 for individuals who reach age 74 after December 31, 2032.

RMDs generally apply to traditional IRAs, SEP and SIMPLE IRAs, and most employer retirement plans.
Roth IRAs are not subject to RMDs during the original owner's lifetime.
The IRS calculates required amounts using your prior year-end account balance and IRS life expectancy tables.
If a required amount isn't distributed, the IRS imposes an excise tax on the shortfall — 25% under current law, reduced to 10% if the shortfall is corrected within the applicable correction window.

How Can Annuity Payments Interact With RMDs?

This is where careful language matters, because the IRS rules depend on how the account and contract are structured. Conceptually, there are a few situations retirees encounter:

Three Common Situations

These are conceptual descriptions, not formulas. How RMDs are satisfied in your situation depends on the account, the contract and current IRS guidance.

01
The Annuity Is One Holding Inside an IRA
If the annuity is one asset within an IRA that also holds other investments, the RMD calculation generally relates to the account, and withdrawals may be taken according to the IRS rules that apply to that account. Contract surrender or withdrawal provisions may limit how much can be taken without a charge.
02
The IRA Is Annuitized Into a Payment Stream
Once a contract has been converted into a stream of periodic payments, the IRS applies specific rules to annuitized amounts rather than a simple account-balance calculation. The applicable treatment depends on the contract and the applicable regulations.
03
A Qualified Longevity Annuity Contract (QLAC) Is Used
The IRS provides special treatment for QLACs, which are designed to begin income at a later age, subject to limits and conditions set by law and regulation.

Qualified vs. Non-Qualified Annuities

Same Word. Different Tax Context.

“Annuity” describes the contract. Whether it is qualified or non-qualified describes the tax character of the money inside it.